Budget impact: Withdrawal of sugar subsidy to reduce offtake from states

Fall in consumption witnessed post-demonetisation continued in January as well, says ISMA

With the Centre deciding against providing subsidy to state governments on sugar in public distribution system (PDS), which was Rs 4,500 crore a year, this year the subsidy is expected to be confined to only Rs 200 crore — because of which lower offtake of sugar sales for PDS and ration shops is expected. 

Indian Sugar Mills Association (ISMA) said in a note that as a result of the subsidy withdrawal in the Union Budget presented on Wednesday, some states who maintain buffer for distribution through ration shops may not do so in future. This will reduce offtake of sugar. 

According the ISMA, fall in sugar consumption, which is derived from sugar offtake data, suggest that the falling trend seen post-demonetisation continued in January as well. Last year in January 2016, almost 25 lakh tonnes of sugar was dispatched by sugar mills, whereas the offtake has been significantly lower in January 2017. The trend noticed in October-December 2016 regarding sugar sales by mills was lower by 5.5 lakh tonnes in 2016-17 Sugar Season (SS), which is continuing in January 2017 also.

Official said that the falling consumption and likelihood of lower offtake for PDS due to withdrawal of subsidy improves domestic sugar availability position and hence, "there is no need to hurriedly relax import of the sweetener."

As on 31 January, 2017, sugar mills in the country have produced 12.85 million tonnes of sugar, as compared to 14.28 million tonnes produced last season on the corresponding date. About 334 sugar mills are still operating in the current SS, whereas 494 sugar mills were operating last year at the end of January. Maharashtra has seen largest fall in production, pushing it lower in top sugar producing states league with Uttar Pradesh (UP) again taking top slot after many years, according to ISMA data released on Thursday.

Sugar mills in UP have produced 45.59 lakh tonnes of sugar till 31 January 2017, as against 35.94 lakh tonnes year-on-year, i.e. almost 10 lakh tonnes more than last year. According to field reports on yield and drawal of cane for sugar production, sugar mills in UP are expected to produce another 39-40 lakh tonnes of sugar. In 2006-07 SS, sugar mills in UP had produced about 38 lakh tonnes of sugar till 31 January, 2007 and in the balance crushing period produced about 47 lakh tonnes, taking the total production to over 85 lakh tonnes. The cane acreage in 2016-17 SS in UP is also similar to that in 2006-07 but the area under high yielding and high sugar recovery varieties is more.

In Maharashtra, sugar mills have so far produced 36.76 lakh tons of sugar, compared with 54.17 lakh tonnes produced by them last year same period. 58 sugar mills continue to crush sugarcane in the State, mostly in the southern part of Maharashtra in Kolhapur, Sangli and Satara Districts. ISMA has cut total sugar production estimate for the current season to 21.3 million tonnes.